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Alibaba Stock Will Keep Growing Despite New Delisting Threats

Is now the time to invest in Chinese e-commerce giant Alibaba (NYSE:BABA)? Shares in the company have had a rocky ride in 2020, but that’s true of most stocks. Despite the havoc cause by the novel coronavirus and escalating tensions with China, Alibaba stock has now virtually bounced back. 

baba stock

Source: Nopparat Khokthong / Shutterstock.com

Before the markets tanked earlier this year, BABA had increased in value by 142% in just the past four years. After riding out the pandemic, I think this A-rated stock is back on the growth path.

March Quarter Results: Coronavirus and the Cloud

Investors who were concerned about the damage the coronavirus pandemic inflicted on Alibaba breathed a sigh of release a few weeks ago. BABA released its results for the quarter ending March 31. This time period encompassed the worst of the pandemic’s effects in China, including mass lockdowns.

The company made it clear that the pandemic had hurt, but that the worst was quickly over:

“Although the pandemic negatively impacted most of our domestic core commerce businesses starting in late January, we have seen a steady recovery since March.”

Despite the coronavirus’ impact, quarterly revenue was $16.1 billion, a 22% year-over-year increase. Adjusted earnings per share of $1.30 saw a 7% increase. That performance shows a high degree of resiliency — another reason why this stock gets an A rating.

In addition, revenue from its cloud computing division rose 58% to $1.7 billion. Alibaba Cloud is closing in on third-place Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google Cloud in global market share. And this is a very lucrative business. After years of building data centers, AWS now accounts for the lion’s share of Amazon’s (NASDAQ:AMZN) profits.

BABA’s continued investment in cloud infrastructure is on track to pay off even more in the future. That’s going to be reflected in Alibaba stock growth.

What About the Push to Delist Chinese Stocks?

The coronavirus pandemic is one thing, but there’s potentially a bigger threat to American investors in Chinese stocks — including Alibaba. 

When the trade war between the U.S. and China flared up again last fall, President Donald Trump’s administration floated the idea of delisting Chinese stocks. In May 2020, Trump once again raised the prospect of delisting Chinese companies. If they don’t adhere to the Sarbanes-Oxley (SOX) Act, they could lose their Nasdaq or New York Stock Exchange listing.  

That would not be good news for investors in Alibaba stock. However, it’s not time to hit the panic button yet. In order for the delisting to take place, legislation would need to pass a vote in the House of Representatives. And significant effort is being put into ensuring it doesn’t even get that far.

Speaking to CNBC, Harvard law professor Jesse Fried noted:

“Wall Street will be lobbying to try to block it, because it makes a lot of money off of listings of Chinese companies in the United States. They will probably be asserting pressure on people in the House to block the legislation from being put to a vote.”

Professor Fried also makes the point that while Trump is a frequent China-basher, he likely has mixed feelings about actually following through with delisting:

“…Trump is very interested in maintaining the primacy of our exchanges and he’s not going to want to see these companies flee to Hong Kong or London or mainland Chinese exchanges.”

Now is not the time to worry about Alibaba being delisted. Even if the law passes, the company’s shares will remain on the NYSE for at least three years.

The Bottom Line on Alibaba Stock

The Chinese e-commerce giant is firing on all cylinders, after moving $1 trillion in merchandise across its platform over the past year. Alibaba has proven that its business model is resilient, able to withstand even the effects of a pandemic. Even in a quarter when China was suffering the worst of the Covid-19 shutdowns, Alibaba increased revenue 22% YOY.

In addition, its bets outside of e-commerce including cloud computing are paying off in a big way.  

The threat of delisting needs to be taken seriously, and you’ll want to keep an eye on that situation. However, that possibility shouldn’t deter you from investing in this A-rated stock. BABA has posted impressive growth, especially since 2017. The hit Alibaba stock took as a result of the March market selloff has been all but erased at this point, but shares will still seem cheap when you look back a year from now.

Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.


Article printed from InvestorPlace Media, https://investorplace.com/2020/06/alibaba-stock-coronavirus-growth-delisting-china/.

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